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How To Trade The Greek Dra(ch)ma Endgame In One Handy Flow Chart
As we reported earlier, the largest Swiss bank UBS - which would certainly be a primary gatekeeper to trillions of capital inflows into Switzerland should the Eurozone collapse - is hardly sanguine on the current Grexit episode, and, in slightly more diplomatic words, suggests you panic.
This how UBS phrased it:
Although we remain constructive on the medium term regarding "risk asset" fundamentals we are increasingly concerned about market complacency regarding near-term Greece risks. Indeed, as noted above, market corrections or dislocations may be required to motivate both Greece and the troika toward compromise. Moreover, equity markets have dwindling upside but greater volatility. Our yearend target for the STOXX Europe 600 index is 380, and we are almost at that target.
We therefore believe it is correct to tactically reduce risk. Our revised allocations are as follows:
And while UBS' big picture risk pessimism may not be everyone's cup of tea, those curious how to trade each individual step of a potential Grexit are urged to read the following:
The main impact from a 'Grexit' scenario would be a jump in risk aversion. The preceding analysis suggests that investors would view Greece as idiosyncratic risk. We, in contrast, would have few doubts that 'Grexit' would trigger a broader jump in risk premiums. We analyse the outcome via an investment clock, dependent on risk aversion. Figure 16 depicts the dependency of asset class performance on the level of risk aversion as well as the change in risk aversion.
The only asset class that would provide protection in the event of a generalised rise in risk aversion would be US Treasuries (we noted in previous research that it would also be the best protection against an economic downturn).
More interesting is to consider a relative performance, as most investors are constrained on how short they can go. We allow allocations between -30% (short) and 120% (levered) to permit some limited short positioning. The figure below shows maximum Sharpe ratio portfolios with optimal allocations to various scenarios based on the level and momentum of the UBS Global Risk Index. Currently, we are in the “medium and falling” risk appetite regime where historically it has been best to short equities and European investment grade corporate bonds against overweight allocations to developed market government bonds and US high yield corporate bonds.
What happens next is the question. Here is UBS scenario analysis going from the situation "now" to the three possible Greek crisis scenarios, to the world just after, which is really one of two possible outcomes: Risk On or Risk Off.
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...Two Hamburger, two Pepsi....sorry, no Coke.
"The only asset class that would provide protection in the event of a generalised rise in risk aversion would be US Treasuries (we noted in previous research that it would also be the best protection against an economic downturn)."
I agree. And before all is said and done, U.S. Treasuries will end up the highest priced and lowest negative yielding of all sovereign debt in the world.
Sorry, US debt is garbage too. The only asset that will go up is the only asset that is currently undervalued (suppressed)... GOLD AND SILVER!
Gold and silver will certainly benefit as faith in financial systems around the world is inevitably shaken.
If you're smart you'll invest in Drachmas and Rubles while their cheap. When they peg to gold you'll be rich.
Pretty big fucking tea cup eh?
It'll never be big enough to fit the upcoming tempest into...
Being long volatility is now more low-risk than... cash?
Correct.
The NSA and police are partnering to fight terrorism by cranking up civil asset forfeitures...
F..K ..F UBS, corporate bonds buyers...Didn't MBS taught you a lesson?
If Greece is not a big concern to the markets now............why will the DOW go +1000 when it is "solved"?
And hasn't this been the question since 2008 and all these "extraordinary measures"?!!!
Everyone is waiting for Janet Yellen to hand out the next trillion.
I think it really is that simple.
Greece obviously has a friend in the White House...so that does raise the question of ""will there be a policy response from DC?"
In that sense...yes, this might move the market.
I just don't see anything happening...today being a textbook case. "Nothing happened." All news has been pretty much shut down for a long time now.
"Now the market moves down on no news" though.
And yes, that is "bad" in the sense that Wall Street expects the media will always take their point of view.
Interesting how people still want the truth though.
We can probably be short equities all week, long the vix and long nugt but then friday close out and get ready for the "fox" to occur that'll send stocks to the moooooooooon.
"""
We'll see if the Fed does something or not.
I think you are right the "fox" will come out has to come out
"As we reported earlier, the largest Swiss bank UBS - which would certainly be a primary gatekeeper to trillions of capital inflows into Switzerland should the Eurozone collapse - is hardly sanguine on the current Grexit episode, and, in slightly more diplomatic words, suggests you panic."
That is the best intro to any article on this website since it's inception. I laughed so hard I nearly choked on my pizza.
I would have expected gold to be bigger on the interest scale.If I where to live in Greece that would be the thing to buy .
Gold is controlled and the USD will be over in a sudden death. If I had Euros and lived in Euroland, I would thank my lucky stars.
As if a TBTF bank is going to recommend buying gold.
The thing to buy would be a one-way ticket to a more fortunate country before Comrade Erika starts insisting Greeks pay EUR50,000 a head each for an exit visa.
O/T, but... I like how the chart is named UBS Sens Anal 2.jpg
...copied from earlier article...
Greek/EU deal in the making?????????????????????????
http://www.keeptalkinggreece.com/2015/02/09/greeces-10-reforms-bridge-pr...
"Something is moving towards an agreement with the Eurogroup partners with Greece reportedly to prepare a bridge program until August. Greek media report Monday afternoon about a “ten reforms plan” in order to cover some parts of the current bailout program and that Finance Minister Yanis Varoufakis works out the compromise plan on the basis of letter by European from Commission President Jean-Claude Juncker, that the Greek side considers as “first sign of good intention from Brussels.” For Juncker’s proposal see below."
Nothing in the analysis about gold. As if it doesn't exist under any scenrio. Fascinating ..... .
UBS only caters to 'civilised' people.
IMO Any greek drachma that comes out of this (if it happens) will reach 1 to 1 parity with the Euro at some point just from the frenzy of speculators that will enter the market.
remember when Spain was near collapse and Portugal....just extend and pretend. Heck the USA isn't that far off the debt percents of these corrupt/bankrupt countries
ponders how the changes in asset allocation will occur with market movements anyway and what the actual expected return and risk is moving from and to, net of transaction costs (and payments to UBS' wonderful traders).
Base your drachma on gold and silver...doesn't matter how much you HAVE, at the moment you just want to make the connection. Let it find it's value in whatever kind of domestic market you have. Quarantine your domestic market as much as you can for awhile, to give it time to recover. So no, you DON'T give out cheap vacations to rich tourists, you put those hotel maids and such to work on your basics, your schools, roads, internal supply-chains, etc. Whatever value the drachma arrives at covers the basics for the folks who live in Greece, and anyone who works can earn enough drachmas to 'buy' a decent, if basic, life (in Greece anyway) you make sure of that. What is happening outside Greece is of no importance now, what they think of your drachma is irrelevant, cause you aren't trading with them. They have to cut off and focus only internally for now.
And you know what? If they issued a silver drachma, even a couple of pricey gold ones, they could balance their books in about 18 months with coin sales alone. Not only would they be silver and gold, they'd have added collector value for their "Fuck the EU" message. Especially if they made a really pretty one,(God, let me design it...please!) and kept it ultra-fine, like Maple-Leaf fine...as long as they retained enough for internal use. Low prices of PM's mean they can buy the shit low, and sell high after minting the coins. I think that would be a better use of the money currently going to European banks.
They need to protect their internal economy, first and foremost, and forget about being restored to acceptable status among their EU "partners". Their own people should be housed, fed, watered and educated before a single foreign investor takes a profit. Regardless of how the creditors howl, the best thing Greece can DO for everyone is get itself back to functional status. What do they really NEED from outside? Would tanking Mercedes sales cause widespread social disruption? Or would the Greeks simply buy cheaper cars, or repair what they have? Same thing with everything else...they aren't barbarians, they HAVE modern conveniences, they just have to maintain them without foreign assistance. They don't NEED the newest version, just a version that works. None of their infrastructure can actually be TAKEN from them without overt military attack, and everything is still THERE the day after default, so...
The inability to finance the newest Iphone does NOT make one a pauper. Neither does the Greek inability to finance the debts from their oligarch's lifestyles make them a 'deadbeat nation'. Most Greeks, I imagine, would be perfectly happy with fewer and functional services, and less interference. They'd NEVER have signed on for those loans had they been informed of both the math and the conditions.
But I like the coin selling idea...they should DO that. And back their currency with them, even if in tiny denominations. What would a gold/silver backed currency DO to shake up markets? Be fun to find out. I want Greece to introduce the whole notion of 'Disruption' to the global economy...Let's see if they are as celebrated as the corporate disrupters that have fucked with most people's lives...Yeah...robotics is SO cool!...Yeah...so is the collapse of your fucking consumer-based economy! Yay! Isn't that fun?
I LOVE Greece for the angst they are causing among people who should NEVER have been allowed to grow so comfortable with their own power and wealth. They are the blistered skin of a hand that keeps trying to grab hold of the fire.
They really need oil. And that is priced in USD not Drachmas.
Drachmas initially issued at 1:1 might even appreciate after Greece repudiates all its debt and the Euro blows up. Image Greece with zero external debt, its own currency, and a whole population looking for productive employment.
If they would only buy Bitcoin on the cheap now.
To Greece: DO NOT DEAL. DEFAULT. EXIT. Hang tough, become debt-free, become independent. Why choose to be slaves? DO NOT DEAL.
Someone wants to cash out of Treasuries before Janet raises rates.
There's not going to be a Grexit. Coup d'état maybe, but no Grexit.
Appropriate that the last pic is titles "sens anal .jpeg".
The Germans get it.